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Household Debt

Rising Household Debt Worries RBA

August 12, 2015

RBA’s Deputy Governor Philip Lowe raises concerns regarding the increasing household debt that indicates towards the steadiness in historically low interest rates.

Mr Lowe said, “Borrowing has increased as house and land prices are driven higher by a rapidly growing population and limited housing supply”.

He told an economic function in Perth, “I think it is difficult to escape the conclusion that household balance sheets are, on average, a little more risky than they once were”.

Although many homeowners are now restricted to investing, but RBA had made its mind not to alter interest rates now, as it can ignite a spending boom, he said. Analysing the statement it has been found that the indication is towards interest rates to keep on hold for some time, as the rates are already on historic lows since May.

He said, “Given the position of household balance sheets, it is unlikely to be in our long-term interest for a consumption boom to be financed by a pickup in household borrowing. In the longer term, the economy needs greater investment to achieve sustainable growth”.

“There’s no shortage of ideas for new projects and products, but innovation needs to be encouraged. Done properly, it could help lift the return to other forms of investment in a wide range of industries across the economy”, he said.

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